Unit Root at level:

LCAC_40
LADSMI
LFTSE100
LNON_GCC
LGCC_INE
X
LNASDAQ
LS_P500

t-Stat

P-Val

-1.505379
-0.927464
-1.922104
-3.180013

0.530996
0.780009
0.322273
0.021285

-1.135606
-0.274902
-0.610793

0.703780
0.926155
0.865871

We notice that all p values are greater than 0.01 thus we cant reject unit root all
variables are non stationary
Unit root at first difference:

LCAC_40
LADSMI
LFTSE100
LNON_GCC
LGCC_IND
EX
LNASDAQ
LS_P500

t-Stat

P-Val

-12.92041
-20.41649
-20.68032
-26.13492

3.17E-28
2.11E-46
9.01E-47
4.10E-49

-9.687863
-11.26844
-11.72987

5.02E-18
5.11E-23
1.75E-24

We notice that all p values are lower than 0.01 thus we reject unit root all
variables are stationary
Co-integration UAE and non GCC:
Sample (adjusted): 1/05/2005 5/29/2014
Included observations: 3432 after adjustments
Trend assumption: Linear deterministic trend
Series: LADSMI LNON_GCC
Lags interval (in first differences): 1 to 4
Unrestricted Cointegration Rank Test (Trace)
Hypothesized
No. of CE(s)

Eigenvalue

Trace
Statistic

0.05
Critical Value

Prob.**

None
At most 1

0.003031
0.000334

11.56429
1.147036

15.49471
3.841466

0.1791
0.2842

Trace test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized
No. of CE(s)

Eigenvalue

Max-Eigen
Statistic

0.05
Critical Value

Prob.**

None
At most 1

0.003031
0.000334

10.41725
1.147036

14.26460
3.841466

0.1859
0.2842

Max-eigenvalue test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Both the trace test and the max eigen values result in a p value >10% which indicated that there is no
conintegrating vector thus there exists no long run relationship between the uae financial market and the non
GCC markets.

Co-integration UAE and GCC:

Sample (adjusted): 1/05/2005 5/29/2014
Included observations: 3432 after adjustments
Trend assumption: Linear deterministic trend
Series: LADSMI LGCC_INDEX
Lags interval (in first differences): 1 to 4
Unrestricted Cointegration Rank Test (Trace)
Hypothesized
No. of CE(s)

Eigenvalue

Trace
Statistic

0.05
Critical Value

Prob.**

None *
At most 1

0.004085
0.000492

15.73745
1.689220

15.49471
3.841466

0.0460
0.1937

Trace test indicates 1 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized
No. of CE(s)

Eigenvalue

Max-Eigen
Statistic

0.05
Critical Value

Prob.**

None
At most 1

0.004085
0.000492

14.04823
1.689220

14.26460
3.841466

0.0540
0.1937

Max-eigenvalue test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

Co-integration UAE and world:

Sample (adjusted): 1/05/2005 5/29/2014
Included observations: 3432 after adjustments
Trend assumption: Linear deterministic trend
Series: LADSMI LCAC_40 LFTSE100 LNASDAQ LS_P500
Lags interval (in first differences): 1 to 4
Unrestricted Cointegration Rank Test (Trace)
Hypothesized
No. of CE(s)

Eigenvalue

Trace
Statistic

0.05
Critical Value

Prob.**

None
At most 1
At most 2
At most 3
At most 4

0.009013
0.004178
0.003541
0.000971
0.000343

62.12827
31.05468
16.68466
4.510593
1.175941

69.81889
47.85613
29.79707
15.49471
3.841466

0.1759
0.6636
0.6632
0.8584
0.2782

Trace test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level

**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized
No. of CE(s)

Eigenvalue

Max-Eigen
Statistic

0.05
Critical Value

Prob.**

None
At most 1
At most 2
At most 3
At most 4

0.009013
0.004178
0.003541
0.000971
0.000343

31.07359
14.37002
12.17407
3.334652
1.175941

33.87687
27.58434
21.13162
14.26460
3.841466

0.1042
0.7963
0.5306
0.9220
0.2782

Max-eigenvalue test indicates no cointegration at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

Both trace and max eigen values tests have p values of > 10% which shows that
we have no coinmtegrating vectors between UAE and rest of the world. While we
might excpect a relationship between world trends and the UAE market this is
not necessary since the UAE has a vast oil reserve and is usually more resistant
to shocks.

Johansen Cointegration

UAE & GCC

UAE& Non-GCC
UAE& World

Trace Test
1 cointegrating vectors
0 cointegrating vectors
0 cointegrating vectors

Granger UAE GCC:

VAR Granger Causality/Block Exogeneity Wald Tests
Sample: 12/31/2004 5/29/2014
Included observations: 3434

Dependent variable: D(LADSMI)

Excluded

Chi-sq

df

Prob.

D(LGCC_IND
EX)

211.8865

0.0000

All

211.8865

0.0000

Dependent variable: D(LGCC_INDEX)

Excluded

Chi-sq

df

Prob.

D(LADSMI)

11.60865

0.0030

All

11.60865

0.0030

Max-Eigenvalue Test
1 cointegrating vectors
0 cointegrating vectors
0 cointegrating vectors

Conclusion
Week long-run relationship
No long-run relationship
No long-run relationship

We notice that we reject that there is no granger causality for UAE on GCC, and GCC on UAE as indicated by
the low pvalues. This means that there is a two way short run relationship between the two, which is logical since
the GCC countries are interrelated and very similar in their economy

Granger UAE Non-GCC:

VAR Granger Causality/Block Exogeneity Wald Tests
Sample: 12/31/2004 5/29/2014
Included observations: 3434

Dependent variable: D(LADSMI)

Excluded

Chi-sq

df

Prob.

D(LNON_GCC
)

14.59198

0.0007

All

14.59198

0.0007

Dependent variable: D(LNON_GCC)

Excluded

Chi-sq

df

Prob.

D(LADSMI)

4.312336

0.1158

All

4.312336

0.1158

we notice that there is granger causality of the non GCC on the UAE, while the
inverse is not true as indicated by first a low pvalue and high pvalue(>10%).
This can be due to the small size of the UAE compared to the combined non GCC
countreies.
Granger UAE World:
VAR Granger Causality/Block Exogeneity Wald Tests
Date: 07/09/15 Time: 20:47
Sample: 12/31/2004 5/29/2014
Included observations: 3434

Dependent variable: D(LADSMI)

Excluded

Chi-sq

df

Prob.

D(LCAC_40)
D(LFTSE100)
D(LNASDAQ)
D(LS_P500)

2.658802
0.484237
3.118824
11.38365

2
2
2
2

0.2646
0.7850
0.2103
0.0034

All

99.74807

0.0000

Dependent variable: D(LCAC_40)

Excluded

Chi-sq

df

Prob.

D(LADSMI)

3.270251

0.1949

D(LFTSE100)
D(LNASDAQ)
D(LS_P500)

0.586287
0.901322
57.18044

2
2
2

0.7459
0.6372
0.0000

All

263.3834

0.0000

Dependent variable: D(LFTSE100)

Excluded

Chi-sq

df

Prob.

D(LADSMI)
D(LCAC_40)
D(LNASDAQ)
D(LS_P500)

5.121290
24.76434
1.846166
71.68017

2
2
2
2

0.0773
0.0000
0.3973
0.0000

All

346.5340

0.0000

Dependent variable: D(LNASDAQ)

Excluded

Chi-sq

df

Prob.

D(LADSMI)
D(LCAC_40)
D(LFTSE100)
D(LS_P500)

11.84352
0.883304
1.569096
23.73466

2
2
2
2

0.0027
0.6430
0.4563
0.0000

All

40.47082

0.0000

Dependent variable: D(LS_P500)

Excluded

Chi-sq

df

Prob.

D(LADSMI)
D(LCAC_40)
D(LFTSE100)
D(LNASDAQ)

11.49010
1.216904
5.618170
8.594859

2
2
2
2

0.0032
0.5442
0.0603
0.0136

All

32.14847

0.0001

we notice that the s&p granger cause all other markets including the gcc, this
makes sense since the s&p is one of the oldest markets and the biggest, it gives
an indication of the overall world economy.
What is interesting also is that the UAE market granger causes the s&p, and
nasdaq, this might be due since a lot of uae investors are also major investors in
the American market due to the size of their wealth.
Finally the nasdaq causes the s&P this makes sense since both markets are us
markets and are therefore interrelated.

Impulse Response Function UAE GCC:

Response to Cholesky One S.D. Innovations 2 S.E.

Response of D(LADSMI) to D(LADSMI)

Response of D(LADSMI) to D(LGCC_INDEX)

.012

.012

.008

.008

.004

.004

.000

.000
1

10

Response of D(LGCC_INDEX) to D(LADSMI)

.012

.008

.008

.004

.004

.000

.000

10

Response of D(LGCC_INDEX) to D(LGCC_INDEX)

.012

10

10

A shock to the to the GCC market affects the UAE market first positively and takes
3.5 days to be fully absorbed.
A shock to the to the UAE market affects the GCC market first positively and takes 4
days to be fully absorbed.

Impulse Response Function UAE Non-GC

Response to Cholesky One S.D. Innovations 2 S.E.
Response of D(LADSMI) to D(LADSMI)

Response of D(LADSMI) to D(LNON_GCC)

.012

.012

.008

.008

.004

.004

.000

.000

10

Response of D(LNON_GCC) to D(LADSMI)

10

Response of D(LNON_GCC) to D(LNON_GCC)

.016

.016

.012

.012

.008

.008

.004

.004

.000

.000

-.004

-.004
1

10

10

C:

A shock to the to the non-GCC market affects the UAE market first positively but
negligibly and takes 3 days to be fully absorbed.
A shock to the UAE market affects the non-GCC market first positively but and takes
3 days to be fully absorbed.

Impulse Response Function UAE S&P 500 nasdaq:(since theyre the only ones
we are interested in and have shown significant short run relationships)

Response to Cholesky One S.D. Innovations 2 S.E.

Response of D(LNASDAQ) to D(LADSMI)

Response of D(LADSMI) to D(LNASDAQ)

.010

Response of D(LADSMI) to D(LS_P500)

.012

.012

.008
.008

.006

.008

.004
.004

.004

.002
.000

.000

.000

-.002
1

10

Response of D(LS_P500) to D(LADSMI)

10

Response of D(LS_P500) to D(LNASDAQ)

10

Response of D(LNASDAQ) to D(LS_P500)

.008

.008

.010

.006

.006

.008

.004

.004

.002

.002

.000

.000

-.002

-.002

.006
.004
.002

10

.000
-.002
1

10

10

A shock to the UAE market affects the nasdaq first positively then negatively but is
negligible and takes 4 days to be fully absorbed.
A shock to the UAE market also affects the S&P first positively then negatively but is
negligible and takes 4 days to be fully absorbed.
A shock to the nasdaq affects the UAE market positively but is negligible and takes 3
days to be fully absorbed.
A shock to the S&P affects the UAE market first positively then negatively but is
negligible and takes 4 days to be fully absorbed.

Variance Decomposition UAE GCC:

Variance
Decomposition
of D(LADSMI):
Period
1
2
3
4
5
6
7
8
9

S.E.
0.010373
0.010846
0.010855
0.010857
0.010857
0.010857
0.010857
0.010857
0.010857

D(LADSMI)

D(LGCC_INDEX
)

100.0000
93.51230
93.36048
93.33768
93.33741
93.33728
93.33728
93.33727
93.33727

0.000000
6.487701
6.639523
6.662320
6.662586
6.662725
6.662724
6.662725
6.662725

10

0.010857

93.33727

6.662725

Variance
Decomposition
of
D(LGCC_INDEX
):
Period

S.E.

D(LADSMI)

D(LGCC_INDEX
)

1
2
3
4
5
6
7
8
9
10

0.010982
0.011069
0.011081
0.011081
0.011081
0.011081
0.011081
0.011081
0.011081
0.011081

7.842677
8.260851
8.375646
8.377846
8.378045
8.378048
8.378049
8.378049
8.378049
8.378049

92.15732
91.73915
91.62435
91.62215
91.62195
91.62195
91.62195
91.62195
91.62195
91.62195

Variance Decomposition UAE non-GCC:

Variance decomposition of D(LADSMI)
Period

S.E.

D(LADSMI)

D(LNON_GCC)

1
2
3
4
5
6
7
8
9
10

0.010666
0.010794
0.010794
0.010794
0.010794
0.010794
0.010794
0.010794
0.010794
0.010794

100.0000
99.58845
99.58788
99.58601
99.58596
99.58596
99.58596
99.58596
99.58596
99.58596

0.000000
0.411548
0.412116
0.413995
0.414036
0.414037
0.414037
0.414037
0.414037
0.414037

Variance
decomposition
of
D(LNON_GCC)
Period

S.E.

D(LADSMI)

D(LNON_GCC)

1
2
3
4
5
6
7
8
9
10

0.013071
0.013182
0.013189
0.013190
0.013190
0.013190
0.013190
0.013190
0.013190
0.013190

6.715391
6.656578
6.728781
6.734735
6.734740
6.734758
6.734758
6.734758
6.734758
6.734758

93.28461
93.34342
93.27122
93.26526
93.26526
93.26524
93.26524
93.26524
93.26524
93.26524

Changes in the UAE market is explained almost completely by internal changes and
less than 0.4% by changes in the non GCC markets.
Changes in the non GCC market is explained almost completely by internal changes
and less than 7% by changes in the UAE market.
Variance Decomposition UAE S&P 500 nasdaq: (since theyre the only ones we
are interested in and have shown significant short run relationships)
Variance
Decomposition of
D(LADSMI):
Period
S.E. D(LADSMI) D(LCAC_40) D(LFTSE100) D(LNASDAQ) D(LS_P500)

1
2
3
4
5
6
7
8
9
10

0.0
105
45
0.0
107
88
0.0
108
03
0.0
108
04
0.0
108
04
0.0
108
04
0.0
108
04
0.0
108
04
0.0
108
04
0.0
108
04

100.0000

0.000000

0.000000

0.000000

0.000000

97.45760

1.604153

0.049184

0.726396

0.162669

97.18867

1.742309

0.053986

0.732335

0.282703

97.17809

1.743509

0.055101

0.736461

0.286839

97.17707

1.743751

0.055563

0.736665

0.286948

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

Variance
Decomposition of
D(LNASDAQ):
Period
S.E. D(LADSMI) D(LCAC_40) D(LFTSE100) D(LNASDAQ) D(LS_P500)

1
2
3
4

0.0
118
34
0.0
122
61
0.0
122
80
0.0
122

0.243136

36.88450

0.710023

62.16235

0.000000

0.418751

36.28277

0.696085

61.95031

0.652084

0.568453
0.568457

36.19223
36.19295

0.694593
0.696111

61.79758
61.79480

0.747140
0.747687

5
6
7
8
9
10

82
0.0
122
82
0.0
122
82
0.0
122
82
0.0
122
82
0.0
122
82
0.0
122
82

0.568525

36.19275

0.696225

61.79477

0.747736

0.568527

36.19275

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

Variance
Decomposition of
D(LS_P500):
Period
S.E. D(LADSMI) D(LCAC_40) D(LFTSE100) D(LNASDAQ) D(LS_P500)

1
2
3
4
5
6
7
8
9
10

0.0
098
26
0.0
102
89
0.0
103
12
0.0
103
14
0.0
103
14
0.0
103
14
0.0
103
14
0.0
103
14
0.0
103
14
0.0
103
14

0.542110

44.09764

1.319750

41.81966

12.22084

0.730752

43.40624

1.324782

41.74238

12.79584

0.864207

43.26634

1.348022

41.60808

12.91335

0.864242

43.26619

1.350266

41.60490

12.91439

0.864341

43.26600

1.350368

41.60483

12.91446

0.864349

43.26600

1.350369

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446